Competitiveness and Operations Strategy. Competitiveness

Competitiveness and Operations Strategy

Competitiveness

CompetitivenessCompetitiveness

Competitiveness refers to how effective an organization is in the competition for customers’ purchases Primarily a function of how well the organization

(through its operations) meets the needs of customers

Competitiveness is relative to others that offer similar goods or services

What is competitive today may not be competitive tomorrow.

Competitiveness : Bases for Competition

Quality

Price

Time

Flexibility

Differentiation

Service

Business organizations compete with one another in a variety of ways. These includes

Managers and workersNote: Some of the dimensions, mentioned above might overlap. Ex: Several of the items on the list may come under the heading of “quality”.

Price is the amount a customer must pay for

the product or service. If all other factors are

equal, customers will choose the product or

service that has the lowest price.

Organizations that compete on price may

settle for lower profit margins, but most

focus on lowering costs of goods or

services.

Bases for Competition

Bases for Competition

Quality refers to materials and

workmanship as well as design

[Appearance, Performance & Function, After

sales service, etc].

Usually, it relates to a buyer’s perceptions of

how well the product or service will serve its

intended purpose.

Product or service differentiation refers to

any special features that cause a product or

service to be perceived by the buyer as more

suitable than a competitor’s product or service.

Example for Special Feature:

Design, Cost, Quality, Easy of use, Convenient Location, Warrantee

Bases for Competition (Contd.)

Flexibility is the ability to respond to changes. The better a company or department is at responding to changes, the greater its competitive advantage over another company that is not as responsive.

The changes might relate to increase or decrease in volume demanded, or to changes in the design of goods or

services.

Bases for Competition (Contd.)

Time refers to a number of different aspects of an organization’s operations, such as

how quickly a product or service is delivered to a customer

how quickly new products or services are developed and brought to the market,

the rate at which improvements in products or processes are made, etc.

Bases for Competition (Contd.)

Bases for Competition (Contd.)

Service might involve after-sale activities that perceived by customers as value added, such as

delivery,

setup,

warranty work,

technical support, or

extra attention while work is in progress such as

curtsey,

keeping the customer informed, and

attention to little details.

Managers and workers are the people at the heart and soul of an organization, and if they are competent and motivated, they can provide a distinct competitive edge by their skills and the ideas they create.

Example: One skill that is often overlooked is answering the telephone.

If the person answering the call is rude, not helpful, or cut off the call

produce a negative image to customers else [calls are handled promptly and cheerfully]

produce a positive image to customers and potentially, a competitive advantage. endif

Bases for Competition (Contd.)

Putting too much emphasis on short-term financial performance at the expense of research and

development.

Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threads.

Neglecting operations strategy.

Failing to establish good internal communications and cooperation among different functional areas.

Neglecting investments in capital and human resources.

Failing to consider customer wants and needs.

Causes of Poor CompetitivenessCauses of Poor Competitiveness

Mission/Strategy/Tactics

Mission/Strategy/Tactics

How does mission, strategies and tactics relate todecision making and distinctive competencies?

Strategy TacticsMission

Mission – The reason for existence of an organization

Organization’s purpose for being

Provides boundaries & focus

Answers ‘How can we satisfy people’s needs?’

Expressed in published statement

What business are we in?

To guide formulation of strategies for the organization as well as decision making at

all levels.

The mission statement is about

the kind of business the company wants to be in

who its customers are

its basic beliefs about business

its goals of survival, growth, and profitability

Mission Statement

Example: One goal of an organization may be to capture a certain %age of market share for a product; Another goal may be achieve a certain level of profitability.

Taken together, the goals and the mission, establish a destination for the organization.

University – discovering and disseminating knowledge

Bank – Safeguard and increase the value of its

customers’ investment

Manufacturer – Supply high quality products to a wide

market, while ensuring a satisfactory

profit

Telev. network – entertain, inform and educate the widest

possible audience

Example – Mission Statement

Sample Mission for a Service CompanySample Mission for a Service Company

Satisfy our customers’ immediate needs and

wants by providing them with a wide variety

of goods and services at multiple locations.

is to provide

(a) society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs;

(b) employees with meaningful work and advancement opportunities and investors with a superior rate of return

Sample Mission for a Manufacturing CompanySample Mission for a Manufacturing Company

IBM-Mission Statement

We create, develop, and manufacture the industry’s most advanced information technologies, including computer systems, software, networking systems, storage devices, and microelectronics.

We have two fundamental missions:

We strive to lead in the creation, development, and manufacture of the most advanced information technologies.

We translate advanced technologies into value for our customers as the world’s largest information services company. Our professionals worldwide provide expertise within specific industries, consulting services, systems integration, and solution development and technical support.

Skynet Worldwide Courier-Mission Statement

The Skynet Worldwide Courier Network sets the standard for international delivery and distribution services by consistently exceeding customer expectations.

Skynet delivers customer satisfaction by:

Integrating all aspects of the transportation process.

Personalizing service worldwide.

Investing in quality people and technology.

Innovating and adapting to meet customers unique and changing requirements.

StrategiesStrategies

Each strategy established in light of:

threats and opportunities in the environment

strengths and weaknesses of the organization (related to environment)

Strategies – are the roadmaps (plans) for reaching the goals

Action plan to achieve mission

Shows how mission will be achieved

Provide focus for decision making

Organization strategies, provides the overall direction for the organization.

The organizational strategies should support the goals and missions of the organization.

Functional strategies, relate to each of the functional areas of the organization.

The functional strategies should support the overall strategies of the

organization.

Strategic Planning HierarchyStrategic Planning Hierarchy

What business(es)/industries do wewant to be in?

How can we compete with thisbusiness/in this market?

How can this functional area supportthe business-level (SBU) strategy?

Corporate-LevelStrategic Planning

Functional-LevelStrategic Planning

Business-LevelStrategic Planning

Questions about organizational/competitive strategies

What is our industry like? What are the future prospects? What are our strengths? Who are the competitors? What are the competitors’ strength? What flexibility do we have?

The answers to the above questions suggest a range of more detailed questions like

What products should we concentrate on? What volume should we produce? What quality should we provide? Do we supply low or high cost products? Are our products reliable? Do we give fast deliveries? Who are our biggest customers? Do we have adequate financing?

Tactics – are the methods and actions used to accomplish strategies

are more specific in nature than strategies

provide guidance and direction for carrying out actual operations, which need the most specific and detailed plans and decision making in an organization.

tells ‘how to reach the destination, following the strategy roadmap.

Operations StrategyOperations Strategyis narrower in scope, dealing primarily with the operations aspect of the organization.

relates to Products, Processes, Methods, Operating Resources, Quality, Costs, Lead-Times and Scheduling.

can have a major influence on the competitiveness of an organization.

For operations strategy to be truly effective, it is important to link it to organization strategy. That is, both organization strategy and operations strategy should not be formulated independently.

Operations StrategyOperations StrategyExampleStrategy Process

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processes and Infrastructure

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory

There is an apparent relationship that exists from the mission down to actual operations, which is hierarchical in nature.

Strategic Planning and Execution

Mission

Goals

Organizational strategy

Functional strategies

Finance Marketing Operations

Tactics Tactics Tactics

Finance operations

Marketingoperations

Operationsoperations

Planning and decision making is hierarchical in

organization

Example: Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably

Mission/Strategy/Tactics

Mission: Live a good life

Goal: Successful career, good income

Strategy: Obtain a college education

Tactics: Select a college and a major

Operations: Register, buy books, take

courses, study, graduate, get job

Characteristics of Strategic Decisions

Long-term perspective/planning horizon

Made at top levels of organization

Involve a high degree of uncertainty about outcomes

Tend to focus on external factors

Can require significant cost and lead time to implement

Can be difficult to reverse once implemented

Cross functional/geographic/organizational boundaries

Choices and results can have a powerful (positive or negative) impact competitiveness and survival of the organization (“high stakes”)

Strategic Decisions in OperationsStrategic Decisions in Operations

Products Processes and

Technology

Capacity

Human Resources Quality

Facilities Sourcing

Services

Operating Systems

Note: Cross functional/geographic/organizational boundaries

Products & ServicesProducts & Services

Make-to-order Made to customer specifications after

order receivedMake-to-stock

Made in anticipation of demandAssemble-to-order

Add options according to customer specification

Processes & TechnologyProcesses & Technology

Project One-time production of product to customer order

Batch production Process many jobs at same time in batch

Mass production Produce large volumes of standard product for mass

market Continuous production

Very high volume commodity product

Product-Process MatrixProduct-Process MatrixV

olu

me

Low

Low High

High

Projects

BatchProduction

MassProduction

ContinuousProduction

Standardization

Service-Process MatrixV

olu

me

Vo

lum

e

LowLow

LowLow HighHigh

HighHigh

Professional Service

Service Shop

MassService

Service Factory

StandardizationStandardization

Capacity & Facilities How much capacity to provide

Size of capacity changes

Handling excess demand

Hiring/firing workers

Need for new facilities

Best size for facility?

Large or small facilities

Facility focus

Facility location

Global facility

Human Resources

Skill levels required Degree of autonomy Policies Profit sharing Individual or team work Supervision methods Levels of management Training

QualityQuality

Target level Measurement Employee involvement Training Systems needed to ensure quality Maintaining quality awareness Evaluating quality efforts Determining customer perceptions

SourcingSourcingDegree of vertical integrationSupplier selectionSupplier relationshipSupplier qualitySupplier cooperation

Decision Area Typical OPMA decisions

Strategic decisionsBusiness What business are we in?

Product What products are supplied?

Process How are products made?

Location Where are products made?

Capacity How large should facilities be?

Tactical decisionsLayout How should operations be arranged?

Planning When should a new product be introduced?

Quality Assurance How well should products be made?

Distribution How should distribution be organized: what transport should be used?

Maintenance How often should equipment be maintained a d replaced?

Operational decisionsScheduling In what order should products be made?

Inventory How much should be held in stock?

Reliability How often is equipment breaking down: what can be done to improve this?

Maintenance When can maintenance periods be scheduled?

Quality control Are products reaching designed quality?

Note: The distinction between strategic, tactical and operational decisions are not usually as clear as given above [Example: Quality – when company plan for a new product then quality is strategic decision; tactical when deciding how quality can be measured; etc.]

Strategy Formulation

To formulate an effective strategy, senior management must take into account the distinctive competencies of the organizations, and they must scan the environment [Internal and External Factors that relate to possible strength or weakness : Strategy Formulation ].

In formulating a successful strategy, organization must take into account both order qualifiers and order winners.

Competency Examples of Companies or Services

Price Low cost U.S. first-class postage

Motel-6, Red Roof Inns

Mail-order computers

Quality High Performance design and/or high quality

Sony TV

Lexus, Cadillac

Disneyland

Five-star restaurants or hotels

Consistent quality Coca-Cola PepsiCo

Kodak, Xerox, Motorola

Electrical Power

Time Rapid Delivery McDonald’s Restaurants

Express Mail

UPS

Domino’s Pizza

On-time Delivery One-hour photo, Federal Express, Express Mail

Flexibility Variety Burger Kind (“Have it your way”), Hospital emergency room

Volume McDonald’s (“Buses welcome”)

Toyota

Supermarkets (additional checkouts)

Service Superior customer service Disneyland

Hewlett-Packard

IBM

Nordstrom's

Location Convenience Supermarkets, dry cleaners

Mail stores

Service stations

Banks, ATMs

Examples of Distinctive Competencies

External Factors that relate to possible strength or weakness : Strategy Formulation

Economic Conditions: These include general health and direction of the economy, inflation, interest rates, tax laws, and tariffs.

Political Conditions: These include favorable or unfavorable attitudes towards the business, political stability or instability, and wars.

Legal Environment: These include antitrust laws, government regulations, trade restrictions, minimum wage laws, labour laws, and patents.

External Factors (Contd.)

Competition: This include the number and strength of competitors, the basis of competition (price, quality, special features), and the easy of market entry.

Markets: This include size, location, brand loyalties, easy of entry, potential for growth, long term stability, and demographics.

Technology: This can include the rate at which the product innovations are occurring, current and future process technology (equipment and material handling), and design technology.

Internal Factors that relate to possible strength or weakness : Strategy Formulation

Human Resources: These include the skills and abilities of managers and workers; special talents (creativity, designing, problem solving); loyalty to the organization; expertise; dedication; and experience.

Facilities and Equipment: Capacities, location, age, and cost to maintain or replace can have a significant impact on operations.

Financial Resources: Cash flow, access to additional funding, existing debt burden, and cost of capital are important considerations.

Customers: Loyalty, existing relationships, and understanding of wants and needs are important

Internal Factors (Contd.)

Product and Services: These include existing products and services, and the potential for new products and services.

Technology: This include existing technology, the ability to integrate new technology, and the probable impact of technology on current and future operations

Suppliers: Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical considerations

Others: Other factors include patents, labour relations, company or product image, distribution channels, relationship with distributors, maintenance of facilities and equipment, access to resources, and access to markets.

Order Winners and Qualifiers

Within a given industry or market, certain competitive priorities can be identified as being either order winners or order qualifiers. Order Qualifiers –they are the basic criteria

that permit the firms products to be considered as candidates for purchase by customers.

A brand name car can be an “order qualifier”

Order winners –they are the criteria that differentiates the products and services of one firm from another.

Repair services can be “order winners” Examples: Warranty, Roadside Assistance, Leases, etc.

Order Winners and Qualifiers

To develop effective strategies for business, it is essential for organizations to determine what combinations of factors are important to customers, which factors are order qualifiers, and which are order winners.

Characteristics such as price, quality, delivery reliability, delivery speed can be order qualifier or order winner.

Characteristics which may be an order qualifier in some situations will become an order winner in another situation [example Quality]

It is also necessary to decide on the relative importance of each factors so that an appropriate actions can be given to the various factors.

Today’s Key Strategies for Operations

Quality-based strategies

Focus on satisfying the customer by integrating quality into all phases of the organization

Quality includes both products and processes such as design, production, and service after the sale

Time-based strategies

Gain competitive advantage by performing certain activities more quickly than competitors

Key Strategies for Operations (contd.)Key Strategies for Operations (contd.) Vertical integration and outsourcing

Make vs. buy

Strategic alliances

Supply chain management - Synchronization of the supply chain to achieve high performance

Suppliers, manufacturers, distribution channels, retailers and customers—all viewed as an integrated system

Cooperation between links, sharing of information

Focus on trade-off between cost and level of service

Time-based strategies

Planning time

Product/service design time

Processing time

Changeover time

Delivery time

Response time

Various Time-based strategies

Planning time: The time needed to react to competitive threat, to develop strategies and select tactics, to approve proposed changes to facilities, to adopt new technologies, and so on.

Product/service design time: The time needed to develop and market new or redesigned products or service

Processing time: The time needed to produce goods or provide services. This can involve scheduling, repairing equipment, wasted efforts, inventories, quality, training, etc.

Changeover time: The time needed to change from producing one type of product or service to another. This may involve new equipment settings and attachments, different methods, equipment, schedules or materials.

Delivery time: The time needed to fill order

Response time: These must be customer complaints about quality, timing of deliveries, and incorrect shipments. These might also be complaints from employees about working conditions (e,g., safety, lighting, heat or cold), equipment problems, or quality problems.

Time-based strategies (Contd.)

Impetus for Strategy ChangeImpetus for Strategy Change

Changes in the organization

Stages in the product life cycle

Changes in the environment

Stages in the Product Life CycleStages in the Product Life Cycle

Introduction

Growth

Maturity

Decline

Gro

wth

rate

Strategy and Issues During a Strategy and Issues During a Product’s LifeProduct’s Life

Introduction Growth Maturity Decline

Standardization

Less rapid product changes - more minor changes

Optimum capacity

Increasing stability of process

Long production runs

Product improvement and cost cutting

Little product differentiation

Cost minimization

Overcapacity in the industry

Prune line to eliminate items not returning good margin

Reduce capacity

Forecasting critical

Product and process reliability

Competitive product improvements and options

Increase capacity

Shift toward product focused

Enhance distribution

Product design and development critical

Frequent product and process design changes

Short production runs

High production costs

Limited models

Attention to quality

Best period to increase market share

R&D product engineering critical

Practical to change price or quality image

Strengthen niche

Cost control critical

Poor time to change image, price, or quality

Competitive costs become critical

Defend market position

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Str

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Com

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HDTV

CD-ROM

Color copiers

Drive-thru restaurants Fax machines

Station wagons

Sales

3 1/2” Floppy disks

Internet